COMMUNITY FRAMEWORKS (CF)
SELF-HELP HOMEOWNERSHIP OPPORTUNITY PROGRAM (SHOP)
HOUSING REHABILITATION GUIDELINES FOR SHOP-FUNDED HOMES
Ø Background
Ø Required Affiliate procedures for proposed rehab projects
Ø Determining acceptable homebuyer Sweat Equity (SE) tasks
Ø “Quality Dwellings” compliance requirements
Ø Manufactured home rehab compliance requirements
Ø Lead-based paint compliance requirements (for pre-1978 homes)
Ø ENERGY STAR & WaterSense compliance requirements
Ø Verifications and Monitoring
Background
Sweat Equity (SE) is the term for labor contributed by the homebuyer(s) toward the construction or rehabilitation of their SHOP-funded home. Sweat Equity Value is the term for the value earned by the homebuyer(s) for that labor contribution. Under federal requirements for SHOP, the homebuyer(s) must contribute a minimum number of sweat equity labor hours toward the construction or rehabilitation of their own homes and/or the homes of other homebuyers participating in the self-help housing program. There must be a fair Sweat Equity Value placed on that labor by the SHOP Affiliate that directly results in a Sweat Equity credit that creates a reduction of the homebuyer’s total cost for the completed unit, either through a reduced purchase price or a credit to the homebuyer on the HUD-1 Settlement Statement at the time of purchase by an income-qualified buyer. Placing such value on the homebuyer’s labor suggests that the renovation tasks performed have been deemed necessary for occupancy and/or directly enhances the overall property value.
Since becoming a SHOP grantee in 1996, most of Community Frameworks’ SHOP lending has been related to our Affiliates’ acquisition of or infrastructure improvements for building lots on which new construction occurs. Earlier “acquisition rehab” projects funded by SHOP were typically what is considered “gut rehab” wherein a significant amount of construction activity is required to render the housing unit “livable”. Due to housing market conditions in recent years we have seen growth generally in the number of SHOP project applications for funding the acquisition of existing homes, and more specifically of existing homes needing only minor rehabilitation. This dynamic has led to the need for clearer guidelines on what are acceptable, or financially worthy, tasks to be preformed by the homebuyer(s).
Additionally, SHOP compliance requirements for rehab vary from those of new construction in several ways. This Guide seeks to provide Affiliates with detail regarding rehab-specific requirements in order to facilitate SHOP compliance in rehab projects.
Required Affiliate procedures for proposed rehab projects
The SHOP Affiliate preparing to submit an acquisition rehab project application for SHOP funding must establish a process by which a housing unit’s renovation needs will be professionally analyzed, and in turn, a process by which related tasks will be assigned for completion by either the Affiliate’s staff, a licensed contractor, or the homebuyer(s).
(A degree of volunteer labor is also required under SHOP rules but typically has not been a factor in financial consideration beyond project cost containment.) Having these clear procedures in place is especially important in those cases where CF accepts a project application that includes “to be determined” units (homes that are not specifically identified prior to submitting a SHOP application). It is also the responsibility of the Affiliate to have a process for analyzing whether or not there is sufficient renovation activity to assure that the homebuyer(s) will be able to meet SHOP-mandated minimum labor requirements of 50 hours for households with one person on title or 100 hours in cases of more than one person on title.
Determining acceptable homebuyer SE tasks
Of course, homebuyer task assignments are usually driven by the homebuyer’s construction skill level, their physical abilities, the licensing or supervision requirements for some rehab activity, and a comparison of cost and time in considering contracted labor versus homebuyer labor. However, homebuyer assignments should only be contemplated for tasks that an Affiliate would otherwise need to pay to have done to prepare the home for sale and occupancy and to build equity value for the homebuyer. In no case should SE labor and value be placed on tasks that solely result in cosmetic improvements to the property (though items which are cosmetic but which add equity value, extend the life of the structure, and/or bring the home into the standards of the existing surrounding housing stock are acceptable).
In general, SE task selection needs to be:
Ø The result of a professional assessment of need (home inspection)
Ø The result of a formal process for generating a single Scope of Work and related budget for all tasks needing to be accomplished that is agreed upon by all parties involved prior to commencing rehab activity
Ø The result of a formal process of placing value specific to SE tasks assigned
o Based on line item cost as if to be paid to contractor, or
o A flat value provided to all participants (minimum of $500 for 50 hours of labor, pro-rated according the actual number of hours performed)
Ø Clear about who is providing the training and supervision of homebuyer labor
o Construction oversight by Affiliate staff or a contracted/partner service?
Ø Clear about the period of time in which homebuyer labor on assigned tasks needs to be completed
More specific considerations:
Ø The permanency of improvements
Ø Equity value added
Ø Health and safety improvements
Ø Mechanical upgrades
Ø Energy and water conservation
Ø Protecting integrity of structure
Ø Extending life of structure
Ø Design accommodations for disabled/elderly
Ø Prep work (i.e. tear-out for framer, electrician, plumber)
Ø Initial trash-out/cleaning/debris removal
Ø Interior/exterior paint where needed – not purely for cosmetic purposes
Sweat equity may include training of the homebuyer(s) for construction on the dwelling units, but excludes homebuyer counseling and home maintenance training. Participation in meetings to design the homes and neighborhood, form the homeowners’ association, and write the Covenants, Conditions, and Restrictions (CCRs) is an administrative or planning function and not a construction or rehabilitation function. Therefore, these activities would not count towards the minimum sweat equity hours. However, these hours could be credited as volunteer labor hours.
“Quality Dwelling” compliance requirements
HUD requires SHOP funds to be invested in “quality dwellings”. In new construction or gut rehab, this is verified through the Certificate of Occupancy. In minor rehab, this is to be verified at time of SHOP Project Application through the following required documentation:
· Pre-rehab inspection (may be done in-house by qualified staff).
· Scopes of Work which address those items indicated as necessary for health, safety, and code compliance in the pre-rehab inspection.
· Post-rehab inspection (must be a third-party inspection such as a City/County permit inspection card, an HQS inspection, or a Buyer’s Home Inspection, unless providing an executed PSA Repair Addendum that adequately addresses all safety and code issues noted in the pre-rehab home inspection).
Manufactured home rehab compliance requirements
Ø If rehabbing a manufactured home, only units built after June 15, 1976 that bear an affixed HUD Seal on each section qualify for SHOP funding. The seal cannot be added – it comes when manufactured – so you can’t rehab it to the point you can get one.
Ø All SHOP-funded manufactured homes must be de-titled (or equivalent per state law) to make them real property by corresponding SHOP occupancy deadline.
Lead-Based Paint compliance requirements (for homes built prior to 1978)
SHOP Affiliates who are involved with the renovation of housing units built before 1978 must comply with the Lead-Based Paint Poisoning Prevention Act (42 USC 4821-4846), the Residential Lead-Based Paint Hazard Reduction Act of 1992 (42 USC 4851-4856), and relevant subparts of the implementing regulations at 24 CFR Part 35, such as subparts A, B, J, K and R. SHOP Affiliates must also comply with the applicable lead safe work practices requirements of the Environmental Protection Agency’s (EPA) Renovation, Repair and Painting Rule (40 CFR 745 Subpart E). In regards to the distinctions
in the overlapping HUD and EPA regulations, the more stringent requirements of the two will apply
in practice.
Required Documentation – Community Frameworks must receive the following for all SHOP-funded homes built prior to 1978:
Ø CF-approved LBP Policy
Ø LBP risk assessment from a certified LBP inspector or risk assessor.
Ø Evidence that the general contractor and any applicable subcontractors are lead based paint certified. (At least one certified renovator must be at the job site or available when work is being done.)
Ø A clearance test done by an independent party.
Ø Evidence that any renter or property owner residing in the home was provided with EPA/HUD’s “The Lead-Safe Certified Guide to Renovate Right” prior to renovation activity on homes built before 1978.
Treating LBP Hazards
Ø Treatment will typically involve interim controls in cases where the area of interior paint disturbance is greater than the HUD “de minimis” threshold of 20 square feet on the exterior surface, 2 square feet per interior room, or 10% of a small component type. (Window replacement, window sash replacement, and demolition of painted surface areas disturb more paint than the de minimis threshold.) For work below the de minimis threshold, any deteriorated paint must be repaired, but the work need not be done using lead-safe work practices.
Ø Prohibited work practices include: open flame burning or torching, heat guns above 1100 degrees F, machine removal without HEPA vacuum attachment, dry scraping or sanding farther than 1 foot of electrical outlets, and use of a volatile stripper in poorly ventilated space.
ENERGY STAR & WaterSense compliance requirements
Ø All products and appliances which are replaced in SHOP-funded rehab units are encouraged to be ENERGY STAR labeled, if there is an ENERGY STAR equivalent available. For lighting, ENERGY STAR labeled lighting fixtures or CFLs, LEDs, or pin-based light bulbs are encouraged to be used.
Ø All water-usage products that are installed or replaced in SHOP-funded units must be WaterSense labeled when such products exist (toilets, showers, faucets).
Verifications and Monitoring
Ø The CF Loan Underwriter, when reviewing SHOP Project Applications, will verify that the Affiliate has an acceptable plan for meeting the above requirements.
Ø Compliance verification and monitoring will occur at Reconveyance and/or Site Visit, unless otherwise noted.
Page 4 of 4 Effective: 5/18/12 (Rev: 03/19/2015 & 10/12/2016 & 4/21/17)